The effect of financial development on environmental quality: a developing country evidence
Financial Development and Environmental Quality: Insights from Sri Lanka
Key finding of the study
The key findings reveal that financial development, economic growth, energy consumption, and foreign direct investments adversely impact environmental quality both in the long-run and short-run. Additionally, trade openness established a negative impact in the short run. Importantly, the Environmental Kuznets’ Curve (EKC) hypothesis and Pollution Haven Hypothesis are established.
Authors
A.W.G.C.N Wijethunga, University of Southern Queensland, Toowoomba, Australia.
Sabaragamuwa University of Sri Lanka,Sri Lanka.
Mohammad Mafizur Rahman, University of Southern Queensland, Toowoomba, Australia.
D.A.I Dayaratne, Sabaragamuwa University of Sri Lanka, Sri Lanka.
Summary
The study examines the impact of financial development on environmental quality in Sri Lanka, considering variables such as economic growth, energy consumption, trade openness, and foreign direct investments, using the Autoregressive Distributed Lag (ARDL) approach with data from 1992 to 2021. The findings indicate that financial development, economic growth, energy consumption, and foreign direct investments negatively affect environmental quality in both the long run and short run, while trade openness impacts it negatively only in the short run. The study confirms the Environmental Kuznets Curve (EKC) and Pollution Haven Hypotheses. Additionally, all variables except trade openness show a unidirectional causal relationship with environmental quality. The study highlights that improving environmental quality in Sri Lanka requires addressing the negative impacts of these factors.
Published in
Environmental Science and Pollution Research
Link to the article
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